STOCK MARKET WATCH -- Monday, 11 November 2013

[Demeter]

1. Insurers sue over Detroit bond plan

http://www.ft.com/intl/cms/s/0/0f8fa608-4899-11e3-8237-00144feabdc0.html?siteedition=intl

Two of the largest insurers of Detroit’s general obligation (GO) bonds have sued the city in a federal bankruptcy court, claiming a proposal by the city’s emergency manager to forgo payments to bondholders is illegal. The case is the latest challenge against Detroit in recent weeks as the city’s eligibility for Chapter 9 bankruptcy is still being debated in federal courts. A verdict is expected next week.

Assured Guaranty Municipal Corp and National Public Finance Guarantee Corp allege that the city is “unlawfully diverting voter-approved” taxes meant for “the sole purpose of paying principal and interest” on unlimited tax GOs, according to the joint complaint filed Friday. On October 1, the city defaulted on $9.3m in interest payments due to investors of tax unlimited GO bonds, forcing the two insurers to pay bondholders, according to the complaint. If the city is deemed eligible for bankruptcy, Kevyn Orr, Detroit’s state-appointed emergency manager, is expected to challenge the city’s full faith and credit pledge in order to reduce nearly $370m in outstanding debt for tax-unlimited GO bonds.

Such bonds are generally considered safer because of state laws mandating their payment using restricted funds. The insurers have asked the judge to order Detroit to stop mixing taxes reserved for paying off debt with the city’s general fund and asked for a hearing on the matter before the end of the year. Another payment of $47.58m in principal and interest comes due on April 1.

“Nothing in Chapter 9 or federal bankruptcy law allows the city to disregard state-law restrictions imposed on the restricted funds and use such funds for a non-authorised purpose,” attorneys wrote in the complaint.

THE WHOLE PROCESS STINKS WORSE THAN ROTTEN FISH--MORE AT LINK